4 out of 5 European banks say base salaries will rise due to bonus cap

The Financial Times reports that four out of five European banks plan to raise executive base salaries to counter regulation-driven bonus cuts next year, potentially undermining the effectiveness of the planned variable pay cap in bringing down pay.

An EU-wide bonus cap will from 2014 limit variable pay to up to twice the level of salary.

However, 79% of European banks surveyed by Mercer, the consultancy, said they were planning to raise base pay for the employees affected.

Based on such efforts to increase fixed pay, more than half the banks said they would keep overall pay levels mostly unchanged next year, according to Mercer’s global financial services pay report published on Thursday.

The report highlights how European bank boards are considering ways to alter pay structures in advance of the new rules amid worries they could prompt an exodus of senior talent to overseas rivals.

Banks have warned the European Union that plans to cap bonuses exceeding €500,000 (£428,000) would drive talent away and would not accurately identify risk takers.

The European Parliament earlier this month narrowly rejected proposals to ban fund managers from receiving bonuses amounting to more than their annual salary amid warnings the plan could backfire by harming pensions and savings.